Generally it is a bad idea — horrible, in fact — to average down on a losing investment. Just because you were wrong when you bought a stock at $50 per share does not make you right by buying it at $25 per share. In fact, with a stock down so much, by averaging down and buying more all you can be really sure of is that you are adding more money to a company that has already screwed up, somehow.

But, for investors, the temptation to average down and lower their average cost is always a large one. Say you buy at $50 and then double down at $25. Now, your stock “only” has to go to $37.50, not $50, for you to break even. It hardly ever works this way, though. More often than not, your loser company continues to lose, and now you simply have a larger position in a losing investment. This can now make selling the loser — always a difficult thing for most investors — even more difficult.

Let’s take a look at five stocks whose stocks have declined a lot, where holders might be tempted to buy more in hopes of a big recovery.

Yellow Pages (Y on TSX)

Yellow Pages (yes that is still it’s name, for some reason) is down 73 per cent this year, on the back of some truly disastrous results. While the stock trades at only seven times’ earnings, investors have given up on it, more or less. Revenue fell to $189.5 million in the first quarter, down from $203 million the prior year. To put things in perspective, in the first quarter of 2013 revenue was $253 million. This has been a long and steady decline, and the company has already gone through one financial restructuring. Sure, the company is shifting to a digital platform, but (a bit like the mutual fund industry) the entire industry has changed. Yellow has $403 million in debt, still a fairly high amount compared with cash flow. Remember Cinram, the maker of CD discs? Not many do. Yellow is not a recovery play we would suggest. To us, yellow still means caution.

Poor Aimia. It had a solid business relationship with Air Canada, until Air Canada this month decided to start its own loyalty points program (in 2020). Now, Air Canada only accounts for about 11 per cent of Aimia’s revenue, but flights in aggregate account for a much larger portion. Aimia has an okay balance sheet, and it has three years to try and replace the lost business, and attract new partners. Investors have already voted, though, and the stock is down 70 per cent this year at the time of writing. Because it will still generate good cash flow to the time of the deal wind-up, AIM stock is getting more interesting as it falls. Not for the faint of heart, for sure, but perhaps a good trading stock from current levels.

Primero Mining Corporation (P on TSX)

The mining business is always tough, but poor Primero, whose stock is down 73 per cent in the past year. Its problems stem from high production costs (partly due to a strike) and lower production guidance. Cash flow has dropped fairly steeply in the past few years, and there is still $46 million in debt and $30 million in decommissioning liabilities. With its market cap down to $120 million, it is hard to see this one rallying without a giant spike in the gold price.

Wi-LAN Inc. (WIN on TSX)

Wi-LAN stock is down 47.4 per cent in the past year, but stands out a bit from the rest of this group because it has no debt, a very strong balance sheet and pays a dividend of 2.65 per cent. The problem here has been a reduced dividend (in 2015) and very inconsistent earnings, due to legal costs in its patent/royalty business. This kept its valuation multiple very low, despite its dividend and its strong balance sheet. In April, the company decided to change strategies though, and is changing its name to Quarterhill Inc., and plans on acquiring businesses in the Internet of Things sector. It started off its new plan with a quick acquisition of International Road Dynamics. It then bought VIZIYA for $40.5 million. Investors seem confused by the strategy, with the stock down about 29 per cent since the first announcement of the change. But, there might be an investment opportunity here: if the company can establish a record of more reliable earnings results, it should get a higher valuation multiple. This will take some time, but since its earnings multiple right now is just six, there is plenty of room for improvement. This one might be one to own for a recovery; at least you get a dividend while you wait.

Medicure Inc. (MPH on TSX-V)

Medicure has three problems now: its market cap has just slipped below $100 million, which can make it difficult to attract new investors; its stock is down 39 per cent this year; and its recent earnings were fairly horrible. The company, a drug discovery and development company, has a cheap valuation at 10 times earnings, but also has a fair level of debt compared with cash flow. It has lost money in many of the past seven years, but is fairly profitable now (although a dip in earnings is expected in 2017). It has some potential from current levels, but with a Venture listing, a horrible healthcare sector and negative momentum, it looks like a “wait and see” rather than a “buy” right now.

As you can see, just because a stock is down doesn’t mean it makes sense to buy. In fact, we usually advise clients to sell their losers and support their winners. Don’t be tempted to make your money back by doubling down on a losing position. Breaking even is never a good investment strategy.

Peter Hodson, CFA, is Founder and Head of Research, 5i Research Inc., an independent research network providing conflict-free advice to individual investors (http://www.5iresearch.ca).